TMI Blog2011 (6) TMI 140X X X X Extracts X X X X X X X X Extracts X X X X ..... red, in favour of the assessee, by Special Bench decision in the case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55 (Chennai) and by Tribunal's decision in assessee's own case for the assessment year 2002-03 - Appeal is dismissed - IT APPEAL NO. 1176 (MUM.) OF 2010 - - - Dated:- 30-6-2011 - PRAMOD KUMAR, V. DURGA RAO, JJ. Jay Kumar and Vijay Shankar for the Appellant. ORDER Pramod Kumar, Accountant Member. This appeal, filed by the Assessing Officer, is directed against the order dated 8-12-2009, passed by the Commissioner (Appeals), in the matter of assessment under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the Act ), for the assessment year 2004-05. 2. Ground No. 1 is general in nature and does not, as such, call for any specific adjudication by us. 3. In the second ground of appeal, the Assessing Officer has raised the following grievance : "On the facts and in the circumstances of the case and in law, the CIT(A) erred in determining the ALP interest rate of 2 per cent for trade credit chargeable to the AE, without appreciating the fact that the same was required to be charged at the rate of 10 per cent being the rate charged b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same interest rate as an arm's length interest for such excess credit period allowed. The interest on excess credit period thus allowed was computed at Rs. 1,87,52,378, and an ALP adjustment was made in respect of the same. Aggrieved, assessee carried the matter in appeal before the CIT(A), who confirmed the ALP adjustment in principle but restricted the same to USD LIBOR rate (which was 1.22 per cent at that point of time) plus a mark up of 80 basis points, which was rounded off to 2 per cent. Aggrieved by the relief so granted by the CIT(A), the Assessing Officer is in appeal before us. 5. Having heard the learned Departmental Representative, and having perused the material on record, we are not inclined to interfere in the matter at the instance of the Assessing Officer. Learned Departmental Representative s spirited defence of, and vehement reliance on, the stand on the Transfer Pricing Officer does not impress us for more reasons than one. The very selection of comparable by the TPO is contrary to the scheme of the applicable transfer pricing regulations. We have noted that the TPO has proceeded to adopt the interest rate at which the assessee has given a Euro denominated lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the price of Euro 680 thus given is not the price at which transactions have been entered into between independent persons. This is the price that the assessee had adopted as internal CUP. The assessee also submitted that external CUP is not available because the product is unique. To our understanding, this argument is totally devoid of any merits. To be considered as internal CUP also, the transaction has to be an independent transaction i.e., between two entities, which are independent of each other. The sale of car kit has admittedly taken place only between the associated concerns. Therefore, the price at which such transaction has taken place is irrelevant for CUP analysis; what is referred to as CUP (comparable uncontrolled price) is price of a comparable but controlled transaction, since to be termed as an uncontrolled transaction, the transaction has to be between two entities which cannot influence or control each other's decision. The transactions between AEs obviously do not satisfy such a criterion. There is thus no internal CUP, as claimed by the assessee before the authorities below and as stated in the information filed along with the IT return ." 6. Grievance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. In the circumstances, we are of the view that it LIBOR rate which has to be considered while determining the arm s length interest rate in respect of the transaction between the assessee and the Associated Enterprises. As it is noticed that the average of the LIBOR rate for 1-4-2005 to 31-3-2006 is 4.42 per cent and the assessee has charged interest at 6 per cent which is higher than the LIBOR rate, we are of the view that no addition on this count is liable to be made in the hands of the assessee." 7. The view taken by us also finds support from these observations of the co-ordinate Bench. When there is a choice between the interest rate of a currency other than the currency in which transaction has taken place and the interest rate in respect of the currency in which transaction has taken place, in our considered view, the latter should be adopted. In Siva Industries Holdings Ltd.'s case (supra), co-ordinate Bench wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emains an open question and need not be adjudicated in this appeal. With these observations, and to the extent the grievance of the revenue is concerned, we confirm the order of the CIT(A) and decline to interfere in the matter at the instance of the revenue authorities. Ground No. 2 is thus dismissed. 8. In ground No. 3, the Assessing Officer has raised the following grievance : "On the facts and in the circumstances of the case and in law, CIT(A) erred in including the expenses incurred in foreign currency on telecommunication charges and in providing technical services outside India in the total turnover for the purpose of computation of deduction under section 10A, ignoring the fact that in the absence of specific definition of total turnover, whether the same definition can be imported from the other sections for the computation of deduction under section 10A of the Income-tax Act, 1961." 9. Learned Departmental Representative submits that the issue is covered, in favour of the assessee, by Special Bench decision in the case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55 (Chennai) and by Tribunal's decision in assessee's own case for the assessment year 2002-03. Respectfully f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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